Hone

Lessons · Accounting · money you may spend as you judge best, and money you may not

Money you may spend as you judge best, and money you may not

Unrestricted money can be applied to any of the organisation's purposes, as those running it judge best. Restricted money may only be spent on the purpose it was given for. The distinction is about permission, not about the money being different in any other way.

Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.

In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.

What it is for

It is the distinction the whole subject rests on, and the one that causes real harm when it is blurred. An organisation short of cash, holding a restricted balance, and certain that its general work is worthwhile, can spend restricted money on it with entirely good intentions. That is a breach whatever the intention was, and it is usually discovered by an auditor or a funder rather than confessed.

How to think about it

For every balance, ask who may decide what it is spent on. If the answer is anybody other than the organisation itself, it is restricted, and the restriction travels with the money rather than expiring when things get difficult.

Worked example

A general donation
Unrestricted. Spend it on any charitable purpose.
A grant for a named project
Restricted to that project.
A donation given for a building appeal
Restricted, even if the appeal has closed.
Being certain the money is needed elsewhere
Not a permission. The restriction is the giver's, not yours.

Your turn

Name what decides whether money is restricted.

Money is restricted when somebody other than the organisation decides its

The trap

Treating a restriction as guidance that can be set aside in an emergency. A cash crisis is exactly when the temptation arrives and exactly when the breach is most serious, because the money is least likely to be replaced.

Next in Accounting

Every Accounting lesson on one page

Practise money you may spend as you judge best, and money you may not on HoneA question on it now, a real problem where there is one, and it is remembered for review. Free, no email needed.